Some companies in the transportation sector have already seen plenty of growth since the pandemic hit. Logistics companies, the ones that are shipping our packages, have already become much busier since most people are ordering online rather than heading to stores. Transportation stocks have been stocks to buy for a while now, but not quite as enthusiastically as tech stocks.
That massive switch over such a short period in time has its challenges. Adapting a massive business model to a whole new approach to the “final mile” and shifting the structure from businesses to consumers is a significant challenge that’s like moving a mighty river.
Also, the transport companies that move goods from manufacturer to warehouses or distribution hubs are staying busy. The trucking firms you see out on the interstates are equally busy and will get even busier in the months to come.
Below are seven of the top transportation stocks to buy right now. All of these picks have either “A” or “B” ratings in Portfolio Grader. Most have had a good 2020, but 2021 — and beyond — should be even better.
- Canadian Pacific Railway (NYSE:CP)
- FedEx (NYSE:FDX)
- Landstar System (NASDAQ:LSTR)
- Old Dominion Freight Line (NASDAQ:ODFL)
- United Parcel Service (NYSE:UPS)
- Knight-Swift Transportation (NYSE:KNX)
- ZTO Express (NYSE:ZTO)
Transportation Stocks: Canadian Pacific Railway (CP)
The lone rail company in this pack, Canadian Pacific has been Canada’s largest rail service since 1881 when it set out to connect all of Canada by rail. Today, it operates out of 11 ports, has 13,000 miles of track and even operates trains into the U.S. border states and beyond.
And it’s not just shipping goods from ports. It’s also shipping cars, timber, grain and other finished and raw goods that make Canada one of America’s leading trade partners.
In early February, CP announced that it set a new record for grain and grain-product shipments in January. It shipped 13% more grain in the 2020-2021 crop year than it did in the 2019-2020 crop year. It also began adding new cars that were more efficient in shipping grain.
And its revenue ton miles (the gauge of its business health) is expanding again. It also has much less competition than rail in the United States.
The stock is up 48% in the past 12 months, and it has a 0.8% dividend, which is certainly better than most savings accounts.
Here’s the challenge for integrated logistics companies — fuel prices. Most people saw low interest rates and a strong dollar continuing for years and inflation staying muted or non-existent.
Oil prices have gone from about $19 a barrel in April 2020 to $66 a barrel today. When you’re running a massive fleet of trucks and airplanes, that gets expensive. And that cost gets passed on to your customers, and they pass it on to consumers. That’s inflation.
At this point, the race is on to electrify the fleet as much as possible since that will help keep down prices in the long run. However, the demand for commercial electric vehicles (EVs) is outstripping the supply at the current moment. But the winners in this sector will be the ones that best manage this transition.
FDX remains one of the top transportation stocks to buy because it has a history of navigating these treacherous waters and succeeding. The stock is up 103% in the past year, but it’s still trading at a current price-to-earnings (P/E) ratio of 13.6.
Landstar System (LSTR)
This intermodal carrier is based out of Florida, where there are major ports that supply access to and from the U.S. to Central and South America, as well as Mexico, but also to oil and gas rigs in the Gulf of Mexico.
Its work inside the U.S. mainly has to do with trucking services that move goods across the U.S., Canada and Mexico.
Most of the trucking industry is reporting strong Q4 revenue and earnings numbers, which is why they’re the transportation stocks to buy now as tech begins to consolidate its massive gains. And if you’re looking for value, this sector is very attractive.
LSTR is up 63% in the past 12 months and 23% in the past three months, with plenty of fuel left in the tank. Since most of its fleet is big rigs, it doesn’t face some of the fuel-price challenges that final mile companies have — yet.
Old Dominion Freight Line (ODFL)
This less than truckload (LTL) firm has been around since 1931, so it has been through a few economic ups and downs over the decades. While LTL is a large part of the business, Old Dominion Freight Line also is involved in a variety of other complementary areas as well. Diversification is safety in this industry.
Its Q4 numbers were also strong, as manufacturing perks up as well as consumer spending. Furthermore, ODFL just announced last week that it’s planning on hiring 800 drivers, which is some indication of how business is going. In February, it announced a rate increase of 4.9% on a number of its contracts beginning in March.
ODFL has been doing well because of its close ties to the consumer and remains a stock to buy. The stock is up 69% in the past 12 months, but just about 7% in the past three months. If it can control fuel costs, and that price hike will help, it should be in good shape.
United Parcel Service (UPS)
“Big Brown” has been around in some form or another since 1907. And when you’re talking transportation stocks to buy, you have to talk about UPS.
FedEx has certainly given UPS a run for its money in recent decades, but Big Brown has kept up, if not outpaced, FDX at this point. The big potential payoff for UPS will be if Congress decides at some point to wind down the U.S. Postal Service and turn it over to private contractors.
This may seem farfetched, but there are a significant number of people who would love to see it happen. Obviously, UPS would be in the running. But this won’t be happening anytime soon.
For now, UPS is a key contractor to many of the top e-commerce companies out there, and that business is only going to grow in coming years. The biggest challenge will be managing high fuel prices. The weaker the dollar, the higher the fuel prices. But UPS has always been on the cutting edge of productivity, and it’s constantly maximizing efficiencies.
At this point, the stock is fully priced, up 76% in the past 12 months and trading at a current P/E of 104. But the stock is down a little more than 1% in the past three months, so this might be a good time to start adding to a position.
Knight-Swift Transportation (KNX)
This Phoenix, Arizona-based trucking company operates in three divisions. The trucking segment operates traditional trucking operations, focusing on flatbed, refrigerated and cross-border operations. It also handles regular and irregular routes.
The logistics division keeps all its intermodal operations on schedule and connected. Knight-Swift Transportation recently bought software company Eleos with the goal of integrating its telematics and other software into KNX operations.
Finally, the intermodal division manages all the container freight to and from railheads that are then placed on flatbeds for distribution. The business in and out of Mexico is significant.
KNX delivered a very strong Q4, yet the stock is still a bargain. It’s up 38% in the past 12 months, but is sitting at a current P/E of just 19, about half the average of the S&P 500.
ZTO Express (ZTO)
If you think logistics and shipping companies are a big deal in the U.S., imagine what it’s like in China, where the middle class is growing by leaps and bounds, and the population is nearly 4x the size. In 2018, the middle class in China was sitting at more than 700 million people.
ZTO Express is an express shipping company that also licenses logistics and cloud services. It has 20% of the express shipping business on the mainland. Also, remember that China has 50 cities with populations over seven million. The U.S. has one.
That’s a lot of business for ZTO now, and there’ll be even more potential business in the future. What’s more, the Chinese economy is already in recovery mode since it entered the pandemic earlier and imposed tough lockdowns that have worked well at controlling the initial spread of the novel coronavirus.
ZTO has been buried in all the U.S. logistics talk, but the stock is still up 22% in the past 12 months, about in-line with its current P/E of 32. This should be on everyone’s transportation stocks to buy list.
On the date of publication, Louis Navellier has a position in KNX in this article. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article.
The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation.